Dis-Intermediating Higher Education

Nov 24, 2012

Article By: Scott Burns

Few expenses are scarier than college tuition. At both private and public colleges, tuition has been rising faster than inflation for decades. One example is my alma mater, MIT. As I entered, the tuition crossed $1,000 a year.

Yes, it was a long, long time ago. Tuition rose to about $1,200 a year by the time I graduated in 1962. I didn’t think much about the cost at the time because my stepfather paid the bill. He didn’t have to, but he did. Although he never finished college himself, he paid all the bills and I graduated without a dime in debt. I could never thank him enough.

The total cost of tuition over 4 years was less than $5,000. Measured another way, the payback period was about 9 months gross salary at my first job. Viewed as an investment in equipment, getting an MIT education was, as they say, a real no-brainer. If tuition costs had risen in line with inflation, that original $1,000 for a year’s tuition would now be $7,972 according to the CPI calculator on the Bureau of Labor Statistics website.

Today the actual tuition is $40,732 (not including room and board), so it’s pretty safe to say that everyday inflation hasn’t been the driving force behind the increase in college tuition. More important, the payback period, based on a likely starting salary for new graduates of about $65,000, is now about 2.5 years. That’s a big increase, but it’s still a payback period lots of people would like on their investments, so we can’t say that going to MIT isn’t “worth” it from a purely economic perspective.

And as experiences go, I’m sure classes at MIT are as fabulous today as they were back then. If you will excuse my total geekiness, I absolutely loved Uno Ingard’s freshman physics lectures. I was thrilled in the late Patrick Wall’s biophysics course and by the drop-in visits from the late cognitive scientist Jerome Lettvin, not to mention the intensity of Hubert Dreyfus in his existentialism course. These experiences were, well, priceless.

But things have a way of getting back to the economics. Today, if you take a normal coarse load, a college student will have about 360 hours of teacher exposure in a school year. So blowing off the early Monday morning lecture is like throwing away $113. That’s what each contact hour costs. You can get the cost down by taking more courses, but few do it successfully. At least not for long.

You can, of course, cut your cost by going to a public college. But that only cuts the price you pay. It doesn’t cut the actual cost. Taxpayers cover that.

The real problem in higher education is how it is delivered. And that is dictated by the way colleges are structured, which has changed very little in centuries.

Does this mean higher education will be prohibitively expensive forever?

Nope. Enter computers and the Internet as a dis-intermediating force— in other words, moving education out of the lecture hall to a new venue, the internet. Just as the World Wide Web has brought revolution to the newspaper industry, the music industry and the book publishing industry, it may soon be dropping that $113 delivered cost for an hour of talented lecture.

Last spring, MIT offered an online course in circuit design, Circuits and Electronics. It was free. Anyone could take it. According to a recent discussion of the course in Technology Review, 154,000 people enrolled. Of those, 7,157 passed the course. If you’re a glass half-empty person kind of person that could be an intimidating fail rate.

But viewed another way, it is stunning. It took traditional classroom MIT forty years to teach that many students Circuits and Electronics the old fashioned way. If one semester of online class can have the output of 40 years of traditional class, you can bet big changes are coming.

Anyone who doubts this wave of change should check out the expanding offerings at iTunes U or the amazing math lessons at the Khan Academy. Then, just for broad interest, check out the lectures available on the TED Talks. My recent favorite there is the amazing visual display of the global advance for human life expectancy shown by Swedish demographer Hans Rosling.

The price of creating knowledge capital is coming down.

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